Buying property in an online auction guide
Matthew Tooth, LendInvest
Auctions are an excellent way to quickly snap up a property, whether you’re investing in a buy-to-let property, looking for a renovation project or purchasing your own home. What’s more, the number of homes on offer through property auctions is on the rise - in the first six months of 2016 16,228 property lots were on offer, up from 15,409 over the same period last year, according to auction portal Essential Information Group.
But auctions are not just limited to physical auction houses. There are now a number of online auction sites, such as LOT11.co.uk and auctionhouse.co.uk, offering you the chance to snap up a property with just a few clicks of your mouse or even via your mobile device.
So how does the process work?
If you want to bid on a property in an online auction, you will need to register with the auction site. The process varies between different sites; some will only look for your address and contact details, while others will want to see photographic ID and a reliance letter signed by your solicitor.
You may also need to pay a refundable registration fee.
Depending on the site, this process can take some time so be sure to do it in advance of the auction itself.
The property details
Around two to three weeks before an online auction is held, the details of the various lots will be published on the auction site.
This will generally detail things like the length of the lease, floor plans, legal details and the guide price.
With LOT11, you also benefit from seeing exactly which properties LendInvest is in principle happy to lend against.
What sorts of properties appear on auction sites?
Vendors marketing properties via auction sites are often looking for a quick sale at a fair price. This will include properties for sale from corporates (including banks and building societies), private vendors including probate sales, properties that are in the hands of an official receiver and properties owned by local authorities or housing associations.
Many properties which appear on auctions will be in need of some work, making them ideal for property investors looking to make a profit from a renovation project.
Some of these properties will require such extensive work - for example, they do not have a working kitchen or a bathroom - that you would not be able to arrange a traditional mortgage on them.
Arrange a viewing
It’s definitely a good idea to go and look around the property before the day of the auction. Viewing details will vary depending on the property - some will hold open days on specific dates, while others will offer individual appointments.
You can generally arrange viewings directly with the auctioneers or their joint agents.
Look out for addendums
There will occasionally be changes to the property information between when it is first published and the day of the auction.
These amended details may be published in the form of an announcement on the lot page of the auction site, while others will release a separate ‘addendum’ sheet.
For example, the guide price may have been reduced or the property may have been sold prior to the auction.
Get your finance in place
When you buy a property at an auction, you will generally have to pay a deposit of around 10% of the purchase price within 24 hours of the auction concluding and you will usually need to complete the purchase within 28 working days. As a result it is essential to work out how you are going to pay for it well in advance.
Organising a traditional mortgage may not be available on the property and will invariably take too long, which is why bridging loans are a popular choice for auction buyers who cannot fund a purchase in cash. Bridging loans are a short-term form of property finance, typically lasting for several months or up to a year. The selling point is that bridging finance lenders will generally be able to provide the funds for the purchase within a matter of days. This is a huge benefit, compared with the weeks’ or even months’ long waits you have to allow with many traditional mortgage lenders.
Once you have completed the purchase, you can then take your time to organise a traditional mortgage or buy-to-let mortgage on the property, or fix it up and then sell it on again.
Some lenders, like LendInvest, work with online auction houses to make the process for buyers easier. This means going through the catalogue in advance and making clear which properties we are willing to lend on.
The bidding process
There are a number of different online auction houses, and the way they format their auctions will be slightly different. With LOT11 for example, there is a live bidding process for each individual lot, which may last around 10 to 15 minutes. Others, like John Pye Auctions, run their auctions over a couple of days. Bidding on each lot begins at the same time, and you then have 48 hours in which to place bids. Make sure you familiarise yourself with how each auction site operates in advance.
Online auction houses that operate a live bidding process may allow you to pre-submit your highest offer. Similarly if you cannot bid online on the day you may be able to do so by telephone, though you will need to give the auction house notice.
Bidding costs you nothing more than your time, but you will also likely have to pay a ‘successful bid fee’ to the online auction house if you make the winning bid.
The reserve price
This is the lowest price that the vendor is prepared to accept for their property. If the bidding does not reach this price, then they do not have to sell. The reserve price won’t be published beforehand.
After the auction
If you make a winning bid, you have made a contract to complete the purchase within a matter of weeks. Failure to complete on the deal in the required time frame will mean you will lose your deposit. Hopefully you have the finance in place to complete the deal and you take ownership of your new property.